Why Consumers Can Negotiate the Price of Virtually Anything
Very few products and services today have fixed, non-negotiable prices.
Posted Apr 01, 2019
Let every eye negotiate for itself and trust no agent. — William Shakespeare
In the business-to-business world, prices have always been fluid and negotiable. Large contracts for purchasing machinery, chemicals, or software are only signed after intense negotiation. For over a century and a half, in contrast, most everyday consumer goods and services like groceries and fast food have been sold using posted fixed prices in the United States without any opportunity for haggling.
Business historian James Morris found that by as early as 1830, country store proprietors in the United States had started adopting a one-price system for basic commodities such as flour and sugar. The period between 1860 to 1920 was one of transition from negotiated prices to set prices. Posted fixed prices became so popular in American retail because of their convenience. They sped up the purchase transaction by an order of magnitude or more and were bolstered by the emergence of branded, standardized products.
But this is changing. Today, fixed posted prices are an illusion, a crumbling bastion that is held up mostly by consumer inertia and reticence. The price of virtually every product, even a package of ham or a bruised banana in a supermarket and a double espresso in a coffee shop, is more often than not, negotiable. The only hurdle to fluid prices is that the customer must initiate the negotiation process by asking to pay a lower amount than the posted price.
Few customers know that it is feasible to haggle, and, of those that do know, even fewer actually dare to do so. What’s more, technology-driven pricing processes and the changing cultural norms both favor the abandonment of stable, fixed prices, and the adoption of negotiated fluid prices.
On the technology front, there is a strong push for customized prices because of the widespread adoption of price optimization software. Consider the similarities between today’s algorithm-based customized prices and prices established through bargaining a century and a half ago. According to historian Steven Gelber:
“Prior to the 20th century, consumption was almost always a personal transaction between a vendor (who was often also the producer) and a buyer, both of whom were likely to know each other as individuals in a unique interpersonal relationship. That broader knowledge of the other complexified the commercial relationship because it triggered feelings that transcended the simple exchange of value. Knowing that the other person was, for example, wealthy or strapped for cash, had a large family or was living alone, was a member of one or another socio-ethnic subculture, and so forth all altered the power relationship in the deal, and virtually every purchase was indeed a deal. Because the price for any item was established at the time of its sale through negotiation, that price often reflected not only the strict exchange value of the item to each party, but possibly also the constraints of ingroup sympathy, the opportunism of out-group antipathy, or particular knowledge of the other person's strengths or vulnerabilities.”
The same type of information the seller and the buyer learned about each other through a life-long interpersonal relationship in the 1800s is gathered today via the intense collection of attitudinal and behavioral consumer data by the company, and through intensive online research by the customer. We are reverting to the “deep knowledge” of the pre-industrial era, insofar as understanding the momentary value of the transaction is concerned. For example, when consumers conduct repeated searches for a particular airfare within a short window of time, they are likely to encounter increased prices on the sites of online travel agencies.
Using customized pricing means that the pricing schedules of companies are more complex than ever before, with far more acceptable price levels for each product and different types and amounts of incentives offered to buyers. For instance, a company may vary the discounts levels it offers its customers at 5%, 10%, 12.5%, 15%, and so on at different times, and rotate these discount levels for the products in its line or catalog.
A complex and unstable price schedule creates more opportunities and greater openness to negotiate prices. After all, if something was selling for a 20% discount yesterday and today’s offered discount is only 10%, then many consumers will deem it reasonable to ask for the 20% off price. The insertion of online intermediaries in many consumer product categories further encourages shoppers to negotiate because they are not so invested in maintaining the product’s brand image and are more open to offering on-the-spot discounts.
Separately, spurred on by the Great Recession of 2008-2009, cultural trends favoring mindful purchase and consumption, and encouraging frugality and minimalism have become popular over the past decade. These movements are based on the principle that consumers should make purchase decisions thoughtfully and use every avenue at their disposal to pay the least amount and get the most value for their money when making purchases. Such extreme value-mindsets mean that consumers want to play an active role in establishing prices and engage in vigorous bargaining, even in product categories where everyone viewed prices as fixed until recently. For example, one woman recounted her surprise on the Make Love, Not Debt blog as follows:
“I was in line at the deli counter behind a tiny, sweet old lady [at a large chain grocery store]. She pointed at a small end of a ham in the display and asked the clerk to weight it for her. It was about half a pound. What happened next floored me. “Will you sell it to me for half price?” she asked the clerk. “Yes,” he said, and wrapped it up for her.”
Personal finance bloggers have embraced this idea further by trying different haggling methods and then sharing those that work. For example, on the personal finance blog Wisebread, Kyle James provides suggestions for grocery store haggling:
“The keys to negotiating at the grocery store are always to be polite and have a friendly conversation rather than be demanding. Throw in a legitimate reason to ask for that discount, and you stand a great chance of saving money on your next trip .”
Each year, more and more consumers haggle when shopping for groceries, buying a cup of coffee, booking a hotel room, and shopping for jewelry. The main takeaway for you? Posted fixed prices are on their way out. Treat every purchase, big or small as an opportunity to get the best price.